Crisis management and the role of a company board

There are at least six types of crisis as defined by their triggers: natural disasters, technological crises, confrontation, malevolence, misdeeds and financial distress.

Contingency planning is by far the most common approach for preparing an organisation to manage a crisis. It is a reasonable tool for situations in which enough of the future can be foreseen to facilitate a plan. However, contingency planning is often impossible or impractical in face of a true crisis. 

There are infinitely many scenarios for crises, and so it is impossible to prepare in advance for them all.

For events with sufficiently high likelihood of occurrence, it makes sense to build in redundancies or other forms of proactive protection, which is contingency planning. For truly rare but highly consequential situations, such as product-tampering scenarios, attacks on supply chains, unusual medical emergencies, catastrophic mission failures, and many others we fail to imagine until they occur, there is no alternative to crisis management.

Crisis management is the process by which an organisation deals with a major event that threatens to harm the organisation, its stakeholders, or the general public. It is management under high stakes and requires rapid innovation.

In contrast to risk management, which involves assessing potential threats and finding the best ways to avoid those threats, crisis management involves dealing with threats before, during, and after they have occurred. 

Boards are in a difficult position when it comes to crisis management. What should a board do to prepare?

First, it should have a plan, and it should do something with it. US General Dwight Eisenhower once said, “Plans are worthless, but planning is everything.” For boards, this means setting goals, who will lead, and basic steps you will follow in a crisis. A crisis-management plan should look inside and out: Internal plans might focus on technical, operational elements. And external plans should include how you deal with investors, the media and regulators. Planning also means thinking about how you will deal with employees, suppliers, and the public at large.

The board should review all of this.

The role of the board changes in a crisis and it may move from an oversight role to that of co-management, or at least being much more involved in management. The board will be more active. This has implications for director availability and serving on many other boards or responsibilities. 

Boards can not only change their role in a crisis, but can change their role twice – once as described above, and a second time if they discover management had a role in the crisis, or if they need to replace the chief executive or management. This is often a sudden and vertiginous shift – you are no longer the partner of management – and can be a real issue if the company is family controlled or controlled by the state.

The role of the chairman in a crisis is important, too. The chairman can organise the other directors; he can be a single point of contact; he can be visible to the market, if necessary; and he can take over the position of CEO, if necessary.

 

Dan Konigsburg is managing director of corporate governance and public policy for Deloitte Touche Tohmatsu.